Author: tarek

All eyes will be on former Secretary of State, and now presidential candidate, Hillary Clinton as she sets out a policy agenda during the opening months of her campaign. While in recent years Clinton has not gotten into the nitty-gritty of tax policy, she does have a long voting record on these issues as a senator from New York, as a presidential candidate in 2008 and as a major public figure. Taken together, Clinton has frequently shown a willingness to take a stand for tax fairness but has never fleshed out a clear agenda on these issues and has occasionally embraced regressive or gimmicky tax policies.

Record as Senator from New York

In a 2006 report card, Citizens for Tax Justice gave Clinton a “B” overall for her votes on five important pieces of tax legislation passed between 2000-2006. She received four “A” grades for her votes against the Bush cuts and a 2006 proposal to permanently repeal the estate tax. She received an “F” for her vote in favor of the “American Jobs Creation Act of 2004,” legislation that we nicknamed the 2004 Corporate Tax Giveaway Bill.

Clinton was one of 69 Senators who voted for the disastrous American Jobs Creation Act, which included a repatriation holiday for corporations. This holiday turned out to be a debacle. The lavish tax breaks it gave to multinational corporations did not lead to any job creation and gave companies a green light to stash even more of their profits offshore to avoid taxes in hopes of receiving another holiday in the future.

These votes show that when it came to major pieces of tax legislation, Clinton largely and rightly rejected the disastrous Bush tax cut agenda. We noted in 2005 that Clinton was relatively outspoken in her criticism of Bush’s tax policy approach.

One gimmicky tax policy proposal that then Sen. Clinton embraced, along with Sen. John McCain, would have temporarily lifted the gas tax in the summer of 2008. This proposal would have provided families with very little relief (maybe enough to fill half a tank of gas), while at the same time it would have done real damage to the Highway Trust Fund. In other words, it was a shortsighted proposal that would have generated some positive headlines without providing much benefit.

Record as 2008 Presidential Candidate

During the 2008 Democratic primary, Clinton frequently stood up, at least rhetorically, for making our tax system more progressive overall. In one particularly poignant exchange on tax fairness, Clinton noted that it’s unfair for wealthy billionaires like Warren Buffett to pay a low tax rate and that “we’ve got to get back to having those with the most contribute to this country.” Putting a bit of substance behind this rhetoric, Clinton came out strong against the carried-interest loophole and repealing tax subsidies for oil companies during the 2008 campaign.

At the time, Clinton was unwilling to take the bigger step of advocating that investment income be taxed at the same rate as labor income. When pressed during a debate as to whether she would increase capital gains taxes, Clinton said that if she raised it all she would only raise it to 20 percent, well below the rate for ordinary income.

While running for president, Clinton also advocated repealing the Bush tax cuts for those making over $250,000. While this was very much in line with President Barack Obama and the Democratic Party more generally, this policy also meant extending about three-quarters of the Bush tax cuts and adding trillions to the deficit. Even so, sticking to the $250,000 threshold would have been better than the ultimate deal that President Obama cut (and Clinton may have cut as well), which only repealed the Bush tax cuts for those making over $450,000.

Recent Controversies

In 2014, Clinton ran into some trouble over statements she made about her own tax rate and tax planning efforts.

On tax planning, it was reported that she had engaged in a standard, but notably problematic, form of estate tax avoidance using a pair of qualified personal residence trusts. The good news is that Clinton has long supported policies to strengthen the estate tax, including advocating in 2008 to restore the tax to its 2009 exemption level of $3.5 million.

On her own tax rate, Clinton said that she pays an ordinary tax rate “unlike a lot of people who are truly well off.” Critics jumped on the fact that she implied that she is not well-off, but missed her broader and correct point that she pays a significantly higher tax rate than many other wealthy individuals who receive most of their income through investments.

Looking Forward to 2016

Although her presidential campaign officially begins Sunday, Clinton has been making all kinds of statements across the country touching on policy issues. Although her statement relating to tax issues have come in broad strokes so far, they have hinted toward a progressive approach to tax issues for the campaign. For example, in October, Clinton noted that handing out tax breaks to corporations that “outsource jobs or stash their profits overseas” does not help grow the economy. Hopefully, this and similar statements are indicative of Clinton’s desire to make ensuring that corporations and the wealthy are paying their fair share in taxes an important part of her candidacy going forward. 

Momentum is building in California for the passage of a state Earned Income Tax Credit (EITC) for low-income workers. Two bills, Assembly Bill 43 and Senate Bill 38, would create a new, refundable state EITC. AB43 would provide a state credit equal to 15 percent of the federal credit for working families with children, and 60 percent of the federal credit for workers without children (the federal EITC for childless workers is significantly less generous than the credit for workers with children). AB43 would also provide a more generous EITC for working families with children under age 5, at 35 percent of the federal credit, in order to support children in their early development. SB38 does not include the provision for families with young children, but is more generous to childless workers; under this bill, families with children would receive 30 percent of the federal credit, while childless workers would receive 100 percent of the federal credit. An ITEP analysis finds that both bills would benefit a significant portion of working families and would improve outcomes for childless workers, who receive little support from other public benefit programs.

A bill in Alaska could impose a state income tax for the first time in 35 years. HB 182, sponsored by Rep. Paul Seaton, would introduce a state income tax equal to 15 percent of an individual’s federal income tax and would apply to some capital gains earnings as well. Seasonal workers would not be exempt from the tax, which Seaton projects would bring in $600 million annually. Revenues are an increasing concern in Alaska, which relies heavily on the volatile oil and gas industry to fund government services and has no state-level income, sales or property taxes. While the bill’s reception has been lukewarm, Rep. Seaton argued that the people should have a stake in funding government. He also argued that an income tax would be easier to collect than a sales tax. Another proposal from Rep. Click Bishop would institute an “education tax” of $100 on those making at least $10,000 a year, $200 for those making between $50,000 and $100,000 a year, and $500 for those making $500,000 or more.

Following Up:
Kansas: A new poll found that 69 percent of Kansans oppose using funds from the highway trust fund to close the state’s budget gap, and 95 percent said infrastructure investment should be a top priority. Gov. Brownback has proposed directing $2.1 billion from the transportation fund over 10 years to pay for his income tax cuts.

New Jersey: State newspapers have reported that Gov. Chris Christie’s privatization of the New Jersey lottery may have helped supporters of the governor. Gtech, the firm that operates the lottery, hired a law firm and a public relations company headed by men close to Christie to make the privatization deal happen. Gov. Christie privatized the state lottery over the objection of the state legislature and without a public bidding process.

Nevada: Legislators in the state Assembly advanced a plan out of committee that they say is an alternative to Gov. Brian Sandoval’s proposed expansion of the state’s business license fee. The Assembly plan would raise the rate of the Modified Business Tax (MBT) instead, from 1.17 percent to 1.56 percent. Proponents of this plan argue that it would be easier to calculate and a more predictable revenue stream, while opponents note that the MBT only covers 4 percent of state businesses and disproportionately falls on labor intensive companies.

Kansas’s fiscal woes have become the stuff of legend. Thanks to disastrous income tax cuts championed by Gov. Sam Brownback, the state government repeatedly has been forced to slash spending. The projected revenue shortfall for the fiscal year beginning in July is $600 million.

The budget crisis is so bad that some school districts have been forced to end the school year early. Yet Kansas lawmakers are wasting time tackling trumped-up problems around how poor people use their meager but much-needed cash benefits.

Just last week, the Kansas legislature passed a bill that would limit the daily amount of money TANF recipients can withdraw from an ATM to $25. The bill would also ban recipients from withdrawing benefits at ATMs in movie theaters, casinos, nail salons, and pools. The maximum amount of time Kansas can receive TANF benefits would be reduced from 48 to 36 weeks, a stingy amount of time for families struggling to find employment or gain the skills necessary to be self-sufficient. The measure also bans those who fail a required drug test from ever receiving welfare benefits.

All of this is reasonable only in a world where pernicious stereotypes about poor people are true. The fact is poor communities have few resources. A nail salon may provide the closest ATM. Furthermore, Kansas’s drug testing program has turned up 11 positive results out of 2,783 applicants since it began in 2014, at a cost of $40,000 (similar programs in other states, like Florida and Tennessee, have also been unproductive). Poor people are no more likely than the general population to use illegal drugs, and if the .004 percent rate of positive drug tests in Kansas is any indication, they actually have a lower likelihood than the general population.

The Kansas measure is likely to fail in its stated goals since the legislation will not prevent the behavior lawmakers seek to curtail. It will, however, make it harder for poor people to live their daily lives. One state senator told the Wichita Eagle that some of her constituents rely on TANF benefits to pay rent, and that the $25 ATM limit will make it harder to manage money. The small daily withdrawal limit will increase the amount of ATM fees that TANF beneficiaries must pay, cutting into the purchasing power of their already-meager benefits. But banks will win in the form of more frequent ATM fees.

Policies like the ones in Kansas increase costs and make outcomes worse. Since 2011, TANF enrollment has dropped by half in Kansas, despite the rate of children in poverty increasing in the state during the same period.

The reduced welfare rolls are no accident. Research shows the best way to build communities and strengthen families is through strategies that increase employment and opportunity, but Kansas lawmakers have taken the more expedient, less rational route of making the TANF program so onerous that it’s too difficult to enroll. One supportive opinion writer argues that the law “isn’t designed to hurt the poor, but to make their poverty uncomfortable.” But trying to make poverty more uncomfortable so that people move out poverty is like trying to put out a house fire with kerosene.

This brings us to the ulterior motive shared by state legislators and Gov. Brownback: state coffers are dry thanks to their tax cuts, they have a budget to balance, and Kansans on public assistance make an easy target.

To be fair, Kansas isn’t the only state to use TANF money for other needs. Misery, after all, loves company. But Kansas, thanks to its regressive tax cut “experiment,” is a particularly galling example. Recently, Gov. Brownback doubled down on his support for zeroing out the state’s income tax, claiming a shift to consumption taxes would create more growth. It’s the same old song he sang when he asked for income tax cuts in the first place, and the growth never came. The governor backed up his talk by suggesting regressive cigarette and alcohol tax increases to shore up the budget gap caused by his giveaway to the wealthy and corporations.

So in Kansas, low-income working families get it coming and going. State lawmakers have cut taxes for the well-off and increased taxes that fall more heavily on middle- and low-income Kansans. Meanwhile, they’ve made programs designed to help lift Kansans out of poverty less effective to save money. Taking from those who have the least seems to be of the foundation of Gov. Brownback’s entire economic development strategy.

Time and again, lawmakers enact restrictions on safety net programs that serve no purpose other than distracting voters from real problems that lawmakers don’t want to deal with. But politicians find it politically convenient to blame the poor for wasting tax dollars and making poor decisions. They would be better served by looking in the mirror.

No member of Congress has been more active in the cause of protecting tax cheaters and tax avoidance by our nation’s wealthiest individuals and corporations than Sen.(now presidential candidate) Rand Paul.

While Paul is a standard bearer of anti-tax conservatives through his advocacy of radical policies such as the flat tax, his advocacy of tax avoidance and his lead role in blocking or even trying to repeal basic anti-tax-evasion measures makes him a radical outlier.

Tax Evasion and Avoidance

Most prominently, Sen. Paul, for years, has single-handedly blocked ratification of a critical tax treaty with Switzerland that would allow the United States to go after the thousands of tax cheaters who hide their income in Swiss bank accounts to evade taxes. In addition, Sen. Paul has been a leader in the movement to repeal the Foreign Account Tax Compliance Act (FATCA), vital law enforcement legislation that helps tax authorities collect information on offshore bank accounts. In both cases, the beneficiaries of his policies are tax evaders and the losers are honest taxpayers who are forced to pick up the tab for the billions lost each year to tax evasion.

Another critical component of Sen. Paul’s pro-tax evasion agenda has been his long time assault on the Internal Revenue Service (IRS). Like fellow presidential candidate Sen. Ted Cruz, Sen. Paul has recklessly called for the abolition of the IRS without explaining how the government would function without any sort of revenue collection agency akin to the IRS. While this kind of rhetoric is largely blather, it has real world consequences. Sen. Paul’s language has led directly to the deep and devastating cuts to the IRS in recent years that have hamstrung the agency’s ability to go after tax evaders and perform basic functions.

On the issue of corporate tax avoidance, Sen. Paul has been a prominent advocate for the aggressive use of loopholes by our nation’s largest corporations. During the Senate Permanent Subcommittee on Investigation’s infamous hearing on Apple’s avoidance of tens of billions of dollars in taxes using Ireland subsidiaries and accounting gimmicks, Sen. Paul sided with Apple, saying that the Senate should apologize to the company and that discussions of tax reform should not include examining specific tax avoidance practices of companies.

Taking this to the next level, Sen. Paul wants to reward offshore tax avoidance through a repatriation holiday. This would give an enormous tax break to the worst tax avoiders, including Apple and dozens of other companies, by allowing them to pay a 6.5 percent rather than 35 percent tax rate on their offshore profits upon repatriation. While proponents of a repatriation holiday, like Sen. Paul, argue that such a proposal could be used to pay for infrastructure, the nonpartisan Joint Committee on Taxation found that a holiday would lose $95 billion in revenue over ten years.

Tax Cuts for the Rich

Sen. Paul has also proposed changes that would increase taxes on the overwhelming majority of Americans, while at the same time providing massive tax breaks to the very wealthy. For instance, Sen. Paul has proposed the implementation of a flat tax, which would tax income at a single flat rate and entirely exempt capital gains, dividends and interest from taxation. A Citizens for Tax Justice analysis of a similar flat tax proposal found that it would increase taxes on the bottom 95 percent of Americans by almost $3,000 on average and at the same time give the richest 1 percent of Americans an average tax cut of nearly $210,000.

This stark unfairness should be no surprise. In fact, the authors of the “Flat Tax” endorsed by Sen. Paul had this to say about their proposal in their 1983 book: It “will be a tremendous boon to the economic elite,” they admitted. And they also added, “Now for some bad news. . . . It is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Besides advocating for a regressive flat tax, Sen. Paul has indicated that he will soon “propose the largest tax cut in American history.” What’s striking about this is that any tax cut, let alone an extremely large one, is out of touch with the dire fiscal realities our nation is facing. Even the most recent budget proposal by the House Republicans, which includes trillions in draconian and infeasible cuts to critical public programs, assumes that revenue levels need to stay at the already low level of current policy.

While Sen. Paul has a reputation as a maverick on many issues, when it comes to tax issues, he adheres to the worst excesses of the anti-tax, anti-middle-class conservative movement. 

Kansas Gov. Sam Brownback doubled down on defending his disastrous tax cuts, insisting that the state would benefit from a shift away from income taxes to consumption taxes. The governor claimed that such taxes, which fall more heavily on middle and working-class citizens, are more “growth oriented” than the income tax, despite the problems with this claim. Brownback has proposed increases in taxes on cigarette and alcohol consumption this session to make up for freefalling revenues, and has indicated willingness to increase the sales tax. Meanwhile, the deep budget cuts enacted in the wake of Brownback’s tax cuts means Kansas schools will close early this year. 

It seems as if New Jersey Gov. Chris Christie’s lottery privatization plan is a bust. The Associated Press reports that the New Jersey lottery, once among the most profitable in the nation, has failed to meet state revenue targets for the second year in a row. Legislators have already lowered income expectations for the struggling lottery, but Gtech, the private firm in charge of operations is trailing even the revised number by $64 million. Gtech is the same company responsible for the abysmal performance of the Illinois State Lottery after it was privatized in 2011. Former Gov. Pat Quinn fired the firm last summer.

Nevada Gov. Brian Sandoval hit back at critics of his proposed increase in business license fees, singling out a report by the Tax Foundation as irresponsible and “intellectually dishonest.” Sandoval wants to replace Nevada’s flat fee of $200 for a business license with a tiered system that takes into account gross receipts and the type of business. The new fees would range from $400 to $4 million a year and would raise $430 million. The governor would use the new revenue to help increase education funding by nearly $782 million. He has gained the support of business and interfaith groups, as well as the majority of Nevada voters.

Following Up:
North Carolina: An editorial in The News and Observer blasted the income tax cut proposal offered by state Senate leaders, noting that “while they’ve been cutting taxes for the wealthy and businesses, which have gotten most of the breaks, they’ve bashed the public schools, cut the university system and put the state in such a tight revenue margin that further tax cuts could be catastrophic.”

Idaho: The state Senate killed the tax plan offered by House leaders that would have removed the sales tax on groceries, increased the gas excise tax and lowered income taxes for the wealthy. ITEP found that the overall impact (PDF) of these changes would be higher taxes for low- and middle-income taxpayers, and dramatically lower taxes for the affluent (the top 1 percent of earners would receive an average benefit of $5,000 per year).  While an alternative plan has yet to be formulated, the Senate appears to be interested in refocusing efforts on the original objective of this legislation: raising money for transportation.

Nebraska: The proposed gas tax increase continued its progress through the state’s unicameral legislature, when senators voted 26-10 to advance the measure. Two more votes are required before the bill reaches Gov. Pete Ricketts, who does not support increasing the gas tax.

Things We Missed:
The Georgia legislature approved a sweeping transportation deal last Tuesday that will raise $1 billion for infrastructure maintenance and improvements through a mix of new revenue sources. The final version of House Bill 170 raises the existing state gas tax by 6.7 cents and reforms the tax so that it will grow alongside fuel-efficiency gains and general inflation, rather than being tied to gas prices. The bill also introduced a new $5-per-night hotel and motel tax and a new fee of $50 to $100 on heavy commercial trucks. The measure eliminated tax breaks for commercial airlines and electric cars to raise revenue as well. Gov. Nathan Deal has indicated that he will sign the measure into law.

States Ending Session This Week:
Mississippi (Sunday) (note: the end of the session means no new tax cut proposals can be considered in Mississippi this year)

The $962 billion (over 10 years) in low- and middle-income tax subsidies provided by the Affordable Care Act (ACA) have now taken center stage in public discourse as the Supreme Court considers King v. Burwell, a case that could strike down as much as 87 percent of these subsidies going forward by not allowing the subsidies in states without a state-run health insurance exchange. On  average, these tax subsidies pay out $268 monthly per eligible person and cover 72 percent of the cost of paying for health insurance premiums. Given this, if the court strikes the subsidies down, it is possible that millions of low- and middle-income Americans would lose their health insurance going forward because they will no longer be able to afford it.

The ACA tax subsidies are available to individuals who enroll in a health insurance plan through an exchange and have a household income between 100 and 400 percent of the federal poverty level (FPL). They are paid out each month in advance directly to insurers and are set up to ensure that low- and middle-income families will only pay a sensible percentage (with this percentage increasing as income rises) of their overall income. For example, the subsidies would ensure that a family at the federal poverty line will not have to pay more than two percent of their income on healthcare premiums, while a family at 400 percent of the poverty line will not have to pay more than 9.5 percent of their income.

When filing their tax returns this year, individuals have to reconcile the subsidies they received based on their estimated income with the income they actually received, sometimes resulting in an additional refund or payment back to the IRS. A new report from the Kaiser Family Foundation predicts that 50 percent of subsidy-eligible tax households will owe some repayment and 45 percent will receive a refund.

While the Supreme Court may strike down the tax subsidies in many states, as we’ve noted before, the move would be a pretty radical one given that it would mean tearing crucial benefits from 7.5 million Americans based on a technicality. The Supreme Court has previously upheld the core of the ACA in 2012, when it rejected claims that the ACA’s imposition of a fee on those who do not purchase health insurance is unconstitutional by arguing that the fee constitutes a tax.

At this point, it is unclear how the Obama Administration, the Republican-led Congress or various state governments would respond if the Supreme Court were to strike down the tax subsidies. Much of the ambiguity is driven by the uncertainty over the precise approach the Supreme Court could take in its ruling, which even in ruling against the tax subsidies could potentially allow the Obama Administration or state governments some avenue for ensuring that the tax subsidies stay intact.

When the Supreme Court announces its decision, likely in late June, here’s hoping it will not make health insurance more expensive or even unobtainable for millions of middle- and low-income Americans by striking down the majority of the ACA’s tax subsidies. 

It’s not hard to sell tax cuts. Who among us would turn down extra money in our pockets by way of fewer taxes?

But state lawmakers do us all a gross disservice when they tout tax cuts to serve their political goals but fail to address the consequences or talk about who will really benefit. The adverse after-effects are often many and disproportionately fall on low- and middle-income taxpayers. This is why the trend to push for tax cuts, in some cases on top of cuts recently enacted, is worrisome. States cannot continually cut taxes and adequately pay for services that the public overwhelming wants. And it is not fair to pay for cuts to more progressive personal and corporate income taxes by heaping more taxes on those least able to pay.

Currently, lawmakers in more than 20 states are considering major tax proposals (See an ITEP summary of most proposals here and here). Much has been made about the fact that many conservative state lawmakers are considering hiking taxes this year, but with very few exceptions, these lawmakers plan to use the revenue gained from increasing one tax to cut or eliminate another.  While a handful of these tax shift proposals have provisions that would benefit working people, the vast majority would deliver the greatest benefit to wealthy taxpayers and profitable corporations, thus making state tax systems more regressive than they already are.

In Ohio, for example, Gov. Kasich has proposed further slashing personal income taxes across the board, which on the surface may sound like it will benefit all taxpayers. However, the governor’s plan recoups most of the lost revenue by raising the sales tax a full half a percent and expanding the tax to more services. The problem with this, of course, is that sales taxes are inherently regressive, which means the plan actually increases taxes on those least able to pay. An ITEP analysis of the Governor’s plan found that the top one percent of Ohio taxpayers would receive an average tax break of close to $12,000 while the average taxpayers in the bottom 60 percent would actually see their taxes go up by more than $100.

Other proposals out right cut taxes without any plans to replace the lost revenue. In North Carolina, Senate members have recently put forward a plan to slash personal and corporate income taxes which would cost the state well more than $1 billion a year, despite the fact that the state faces a $300 million budget deficit. The proposal would be the second billion-dollar tax cut in as many years. Texas lawmakers are getting closer to finalizing a more than $4 billion tax cut package that would reduce property and business taxes. 

The Cost of Tax Cuts

The problem with state politicians’ dogged pursuit of tax cuts is that they don’t come without a cost. Public services such as education, public health and safety, infrastructure, etc. either must be pared back or paid for using some other source of revenue. 

ITEP along with many academics and news outlets have written extensively about the Kansas experiment. Gov. Sam Brownback promised Kansans that his top-heavy tax cuts would pay for themselves by stimulating economic growth. Widely derided three years ago, that claim has proven to be untrue and now the state is scrambling to make up lost revenue. Gov. Brownback has proposed increasing (regressive) alcohol and tobacco taxes to help partially plug a growing budget gap and House and Senate members have floated other largely regressive tax hikes. Further, the state has had to reduce funding to schools, higher education and social services. The proposed tax increases will undoubtedly hit low- and middle-income more as will the cuts in vital services that promote broader access to opportunity.

Tax cuts simply don’t work as an engine of economic growth, and it is time for governors and state legislators to stop peddling their plans as such. The truth about state tax systems is that each of them takes a greater share of income from their very poorest residents than their richest residents. The majority of pending tax cut and tax shift plans on the table would exacerbate this nationwide problem.

There is a right, progressive way for policymakers to approach tax policy. Last year, the District of Columbia broadened its sales tax base to include more services and made permanent a higher tax rate for the wealthiest residents. At the same time, it lowered taxes for middle-income earners and strengthened the Earned Income Tax Credit to put more money in the pockets of working people. Given that every state tax system requires more of its lowest-income residents than the rich, the right approach to tax reform is to focus on measures that would make corporations and the wealthy, those most able, pay their fair share.

As we’ve noted previously, eight states enacted gas tax increases or reforms in 2013 and 2014 to better fund their transportation infrastructure.  So far this year, six more states have joined this list, meaning that a total of 14 states have taken action on the gas tax in just over two years’ time (Wyoming kicked off this trend in February 2013).  Here’s a quick rundown of what has been enacted this year: 

1. After years of debate, Iowa’s gasoline and diesel taxes finally rose by 10 cents per gallon on March 1 as a result of legislation enacted in February.  The increase was Iowa’s first in more than a quarter century.

2. Next door in South Dakota, lawmakers quickly followed Iowa’s lead with a law that raised gasoline and diesel taxes by 6 cents starting April 1.

3. Utah took a more long-term approach to its gas tax with a law that will hugely improve the tax’s sustainability.  In addition to raising the rate by 5 cents on January 1, 2016, the state also converted its fixed-rate gas tax into a smarter variable-rate gas tax that will initially grow alongside gas prices, and then eventually alongside the greater of gas prices or inflation.  Utah is now the 19th state to adopt a variable-rate gas tax.

4. Georgia Gov. Deal has promised to sign a transportation funding bill recently approved by the state legislature.  Under the bill, the state portion of the gas tax will rise by 6.7 cents on July 1.  Until 2018, the rate will rise each subsequent July based on growth in both vehicle fuel-efficiency and inflation, after which point the inflation factor will be dropped and the rate will be determined based on fuel-efficiency changes alone.  Georgia is the first state in the nation to tie its gas tax rate to fuel-efficiency gains: a recommendation we have made in the past.

5. Kentucky drivers received a 1.6 cent gas tax cut on April 1, far less than the 5.1 cent cut that would have taken effect if lawmakers had not acted.  This was accomplished by raising the state’s minimum gas tax level from 22.5 to 26.0 cents per gallon.  In addition to this boost in the state’s gas tax “floor,” lawmakers also reformed (PDF) the tax with an eye toward predictability by mandating that gas tax cuts brought on by falling gas prices cannot exceed 10 percent per year.

6. North Carolina drivers are also seeing their gas taxes fall, but only temporarily and not by as much as would have otherwise been the case.  Under a bill signed by Gov. Pat McCrory, gas tax rates fell by 1.5 cents on April 1 and will drop by an additional penny on both January 1 and July 1 of next year.  This gradual 3.5 cent cut is less than half the full 7.9 cent cut that otherwise would have taken effect this summer.  Additionally, lawmakers also agreed to swap out their price-based gas tax formula in favor of allowing the tax rate to grow alongside population and the general inflation rate—a change they think will generate a more substantial, predictable stream of revenue in the years ahead.

It is likely that more states will follow the lead of these half dozen states before 2015 legislative sessions come to a close.  Our earlier surveys identified eight states in particular that are also giving the idea careful consideration: Idaho, Michigan, Missouri, Nebraska, New Jersey, South Carolina, Vermont, and Washington State.

North Carolina lawmakers proposed another round of personal income tax cuts last week that cost more than  $1 billion when fully enacted and would slash millions of dollars in corporate income taxes. The Job Creation and Tax Relief Act of 2015 (a sure misnomer) would reduce the personal income tax rate to 5.5 percent by 2017 and replace the current standard deductions with  a zero percent tax bracket on the first $10,000 in income for single filers by the same year (married couples could apply the zero percent bracket to the first $20,000 in income). The bill would also reduce the corporate income tax rate to 3 percent by 2017 even if the state fails to meet the required revenue targets included in the 2013 tax cut bill along with several other changes. Revenues are $300 million below projections this fiscal year. Opponents of the cuts note that they would do little to stimulate the state’s economy while reducing public investments and providing a windfall for already-profitable corporations.

An elaborate tax proposal from Idaho House Majority Leader Rep. Mike Moyle would cut taxes for the top one percent of Idaho taxpayers by $5,000 according to an analysis by ITEP and the Idaho Center for Fiscal Policy. Moyle’s plan would increase the state’s excise tax on gasoline by 7 cents, remove the sales tax on groceries and eliminate the food tax credit. Combined, the elements of the bill will increase taxes paid by the bottom 20 percent by $68 and taxes on middle-income earners by $192.

Alabama Gov. Robert Bentley embarked on a statewide tour to drum up support for his proposed tax increases. The plan, which received a lukewarm reception from many state legislators, would increase the cigarette excise tax by 82 cent a pack, increase the sales tax rate on automobile purchases from 2 to 4 percent, and would end some tax credits for insurance companies, banks and corporations. The combined measures would raise $541 million in new revenue. The governor argues that his plan is necessary to end the dysfunctional nature of state budgeting.

The Nebraska Legislature will consider a bill that would increase the excise tax on gasoline by 6 cents. The increase would be phased in over four years (1.5 cents per year). Gov. Pete Ricketts opposes the increase in the gas tax, arguing that the state should look to other options for road construction that do not entail tax increases.

Things We Missed:
The Mississippi House defeated efforts to pass significant tax cuts this legislative session after Lt. Gov. Tate Reeves’s proposal to cut income and corporate franchise taxes by $555 million over 15 years died on the floor. Opponents of the cuts noted that they would sap K-12 and higher education budgets while shifting the burden of funding crucial services to the local level.

Utah Gov. Gary Herbert signed a package of gas and property tax increases that rank as the Utah’s largest revenue increase in 20 years. Proponents of the tax increases say they are necessary to fund important transportation projects and improvements in public education. The excise tax on gasoline will increase by 5 cents per gallon beginning in July, and will be indexed to inflation. It is expected to bring in $100 million for road and bridge repairs over the next two years. The property tax increase will add about $50 in taxes to the bill for a $250,000 house, and the revenues raised are earmarked for education.

States Ending Session This Week:
Kentucky (Monday)
South Dakota (Monday)
Idaho (Friday)

Whether you indentified with Dorothy, Blanche, Rose or Sophia, The Golden Girls was a shining moment in television history. The show was groundbreaking in its portrayal of senior citizens as fully complex individuals, and has inspired a devoted following decades after the end of its run.

Life imitates art, and senior citizens are a favorite target of legislator largesse. Almost every state that levies an income tax now allows some form of income tax exemption or credit for citizens over 65 that is unavailable to non-elderly taxpayers. But many states have enacted poorly-targeted, unnecessarily expensive elderly tax breaks that make state tax systems less sustainable and less fair.

Poorly targeted tax breaks for the elderly are a costly commitment for many states—and long-term demographic changes threaten to make these tax breaks unaffordable since older adults are the fastest growing age demographic in the country. Moreover, while poverty has often been associated with advanced age, a 2014 US Census report found that Americans over 65 are less likely to be poor than people in their prime working years, further exacerbating the mismatch between the tax breaks offered and needs within the population.

Despite these concerns, lawmakers in many states have proposed further tax breaks for the elderly (click here to read an ITEP brief on this topic). Here are five states where senior tax proposals are on the table:

Iowa: State Sen. Roby Smith recently filed legislation (SF 277) that would remove pensions, annuities, and retirement income from the personal income tax base. So far, the legislation has 23 cosponsors and a similar bill is being sponsored in the House. Note that Iowa already allows a $6,000 exclusion ($12,000 for married couples) for retirement income.  

Maine: There is a lot of coverage of Gov. Paul LePage’s sweeping tax shift package that would hike sales taxes to help pay for significant personal and corporate income tax cuts and the elimination of the estate tax.  One part of the plan that has received less attention is an increase in the state’s current pension exclusion from $10,000 to $35,000 per each taxpayer over 65.  An ITEP analysis of this increased pension tax break found that more than 60 percent of the benefit would flow to the wealthiest 20 percent of Maine residents.

Maryland: Gov. Larry Hogan would like to eventually exempt all pension income from state income taxes, but due to a tight budget situation he is starting with a more limited proposal targeted toward politically popular beneficiaries: military veterans, police, and firefighters.  It’s important to note that Maryland already has a generous exemption on the books for pensions. Under current Maryland law, the first $29,000 in pension income collected by disabled taxpayers and those over age 65 is exempt from tax, and for military veterans that amount is even higher, at $34,000.  Of course, these breaks come on top of the normal personal exemption ($3,200) and standard deduction ($2,000) that all Marylanders can claim. As a result, Hogan’s plan would mostly benefit taxpayers with above-average pensions (the average military pension is $28,000 according to official statistics) and people with the financial means to retire early.  Fortunately, State Senate President Mike Miller thinks that the plan is unlikely to gain passage.

Minnesota: Lawmakers are debating a variety of bills aimed at eliminating or reducing taxes on Social Security benefits. As this article notes, the cost of cutting the tax on Social Security benefits will grow over time because the number of Social Security beneficiaries is growing.

Rhode Island: Lawmakers want to reduce taxes for Ocean State retirees this session, but the proposals that have emerged from the state’s House chamber and the governor’s office differ greatly in their cost and scope.  A bill introduced in the House would exempt all state, local and federal retirement income, including Social Security benefits and military pensions, from the state’s personal income tax. An initial ITEP analysis of the bill found that the lion’s share of the benefits would go to well-off elderly taxpayers.  Since some Social Security income is already exempted from Rhode Island taxes, low-income seniors already owe no personal income taxes on those benefits and often have no other retirement income. The House plan could cost more than $60 million if enacted.  Gov. Raimondo’s budget includes a much smaller and more targeted retirement income tax break which would fully exempt taxpayers with incomes less than $60,000 from paying taxes on Social Security.  Not only would her plan cost significantly less (around $4 million), it would ensure that 100 percent of the benefits from the tax break flow to moderate-income older adults who depend primarily on Social Security for their income.